Africa’s Development Dynamics

By Mario Pezzini, Director of the OECD Development Centre and Special Advisor to the OECD Secretary-General on Development

The launch this week in Addis Ababa of the new flagship joint report Africa’s Development Dynamics 2018 alongside the African Union Commission reflects a fundamental commitment to an ongoing conversation on Africa, with Africa and for Africa. Thus, we did more than unveil a report on paper about the challenges of growth, jobs and inequalities. What we are also doing is strengthening an inclusive platform for policy dialogue on how best to turn Africa’s own vision and strategy for its development as captured in the African Union’s ambitious Agenda 2063 into reality and practice. And it is a platform in which we envision engaging with and involving more and more diverse actors to tap their expertise and add their perspectives to drafting future editions of our joint analysis.

Africa’s growth was the second highest in the world at 4.6% between 2000 and 2016. Prospects for more resilient growth are fuelled by at least two key factors. One factor is the surge in private consumption, which has now reached 3.5 percentage points of GDP annually over 2009 to 2016. This is higher than Latin America and the Caribbean and comparable to the level in China and other developing Asian countries. The emerging middle class is growing and expecting more; it increased from 108 million people in 1990 to 247 million in 2013, underpinned by rapid urban growth and better education. The other factor is capital accumulation, which has quickly accelerated to an average of 6.6% between 2009 and 2016. This is at a level similar to Asia at about 7% and largely overtaking the level in Latin America and the Caribbean of around 2%.

Despite these positive indicators, the drivers of long-term growth in Africa must be strengthened. Africa’s productivity remains too low by international standards, with labour productivity falling behind that of Asia in such sectors as agriculture, transport, financial activities, construction and manufacturing growth. Engaging in productive transformation — with different regions identifying complementary angles and advancing specialisation — remains a crucial and consensually identified target for the continent. Africa experienced virtually no growth in total factor productivity (TFP) between 2009 and 2016, whereas TFP contributed 1 percentage point to Asia’s annual growth. With business as usual, the share of vulnerable employment in Africa will remain at 66% until 2022 – far from Agenda 2063’s target of 41% by 2023. Today, 282 million workers are vulnerably employed in Africa. Only 12% of Africa’s working-age women were in waged employment in 2016, compared to 22% in Asia and 33% in Latin America and the Caribbean. About 42% of Africa’s working youth live on less than USD 1.90 a day. Overall, 36% of Africa’s population — about 400 million people — lived on USD 1.90 a day or less between 2009 and 2016, compared to 49% in the 1990s. Yet, reducing inequalities is essential for lowering poverty. If Africa’s Gini coefficient was equal to that of developing Asia, then the continent’s level of growth from 1990 to 2016 would have lifted an additional 130 million people out of poverty.

Mobilising financial resources to invest in Africa’s productivity, particularly in landlocked and non-resource-rich countries, may be a way forward. On the one hand, total external inflows to Africa in the form of remittances, foreign direct investment, portfolio inflows and net official development assistance reached USD 185 billion in 2016, about 8.8% of GDP. This level is significantly higher than the 4.5% average for Asia and the 6.9% average for Latin America and the Caribbean. Moreover, such important actors as the European Union have identified additional resources for private sector development. On the other hand, domestic resources reveal room for more action. Domestic savings amounted to USD 422 billion annually over the period 2009 to 2016, which is 20% of the continent’s GDP. This is less than developing Asia at 27% but better than the 18.5% of GDP in Latin America and the Caribbean. Government revenues make up 16.8% of Africa’s GDP, which is less than Latin America and the Caribbean at 17.7% but more than developing Asia at 15%. Fiscal reforms are possible, and African countries are not condemned to poor fiscal revenues. Look at Tunisia’s tax-to-GDP ratio, for example, at 30.3%. Overall, Morocco, South Africa and Tunisia have higher tax-to-GDP ratios than the Latin American and Caribbean average of 22.8% in 2015 or a country like Chile.

We know policies matter. Achieving the continent’s development goals in the face of challenges posed by growth, jobs and inequalities requires engaging in a constructive policy dialogue built on three key pillars:

First, we must understand Africa is one and multiple at the same time. Africa is one continent composed of diverse regions and countries. So while we look at the continent as a whole, we cannot overlook the regional development dynamics in Southern Africa, Central Africa, East Africa, North Africa and West Africa. Advancing overall integration means finding the right mix of specific policy recommendations at the continental, regional and national levels.

Second, we must understand that Africa is not isolated, but integrated in the global economy. Africa is one of the most integrated continents in the global economy. Its imports and exports of goods and services represented about 50% of Africa’s GDP in 2015-16. This is similar to Asia’s ratio and higher than the 44% in Latin America and the Caribbean. What is key is the type of integration in the global economy. Africa’s integration in the global economy opens many opportunities that, with the right policies, can upgrade value chains and have an impact on African growth, jobs and inequalities. However, exploiting those opportunities requires significantly improving integration within Africa.

And third, we must understand that data matters. Producing high-quality, up-to-date, comparable and harmonised data is essential to monitor the implementation of Agenda 2063 and to inform policies. Policies can be benchmarked by comparing African countries with other developing regions in Asia, Latin America and the Caribbean and by exchanging on what does and does not work in the local African context. Other countries too have a lot to learn from African policy experiences, and evidence-based decisions can enrich South-South, North-South and South-North policy dialogues.

Let us build on this understanding and optimise the co-produced first edition of Africa’s Development Dynamics 2018 to steer ongoing dialogue and engagement on Africa, with Africa and for Africa towards a fair, inclusive and sustainable model of development for the continent.